Filings to seek depositions in the California AG’s cease and desist orders regarding three charities

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The battle over the AG’s cease and desist order is in the appeal stage. Hearings are in day 6 out of 15 scheduled days.

The appeal is taking place in the state Office of Administrative Hearings (OAH). An Administrative Law Judge (ALJ) is overseeing the appeal.

This is the second in a series of posts describing some of the filings in the public record regarding the enforcement action and the appeals by the charities.

I have one stray follow-up comment to my previous post and then will dive into the filings about obtaining depositions from people living outside the state. Those individuals are not subject to an order to appear in person before the OAH.

Might want to get a fresh cup of coffee. This will be a long read. If you are at all interested in this case, you will find lots of interesting background info here.

Oh, everything I mention here is based on public documents available from the OAH.

Follow-up on Pro Hac Vice – FftP filed with OAH to get one of their attorneys granted Pro Hac Vice permission to practice in the state. This attorney is the lead litigator for the law firm on non-profit issues. Of note is the motion says it is unopposed by the AG. The OAH ruled they do not have authority to grant Pro Hac Vice. I don’t fully understand the reasoning, but I think it is essentially that the state bar or a court grants such status and the OAH is neither the state bar nor a trial court that can grant the permission. So, another motion, running 60 pages in length, was filed with the Superior Court of the county of Los Angeles. That court agreed it had authority and granted the attorney Pro Hac Vice status.

The docket shows a notice filed by MAP regarding Pro Hac Vice. I didn’t read it and assume it was announcing the same results for their counsel. I didn’t see anything on the docket from CMMB.

Protocol for naming individuals mentioned in filings

As I started this series of posts, I pondered how to name the individuals that are mentioned.

Full name? Initials? First name and initial of last name? No name?

Here is my conclusion:

For only the expert witnesses, my posts will list the person’s full name. Those individuals want to be in the public eye and want to be known as an expert. It looks like they usually speak in public on a regular basis. Thus I am comfortable listing their full name.

For everyone else in the case, such as management and staff of the charities along with partners and staff of CPA firms, it is different. They did not sign up to be in the public spotlight, so I’ll skip their last names. My posts will list their first name and first initial of the last name. I’ll also list job title or job description along with their employer when pertinent. Those in the know already know who has been dragged into the case.

Obtaining permission to obtain depositions

The AG wanted to depose a number of people who reside outside California but cannot be compelled to attend a hearing by the OAH. Thus the process the AG had to follow is request the ALJ to approve taking depositions.  The charities can file objections, which they did. (Charities unsuccessfully claimed these constitute discovery, which is not allowed under OAH regulations.). After addressing objections, the ALJ then issues orders allowing certain people to be deposed. The AG then goes to the Superior Court to request an enforceable order for those individuals to be deposed.

Not visible on the OAH docket are the subsequent filings with the Superior Court and the resulting orders. Also not visible on the docket are any of the depositions. If I’m grasping the filings correctly (admittedly a shaky assumption), the depositions will be entered as testimony, either in whole or in part, at the hearing.

Concept here, as I gather, is people living out-of-state can’t be compelled to appear in person to give testimony so their testimony is taken by deposition in the area where they live.

 

Based on the orders from the ALJ and the AG’s requests, here is the list of people the AG was allowed to depose along with my summary of their job responsibility and my summary of the reason they are being deposed.

Before going into the details, a few disclaimers:

The job titles or job descriptions are summarized by me. The purpose of testimony is condensed by me. Be advised I’m learning as I go and it is possible I don’t understand something right in front of me. I may have understood a comment without realizing its importance.  I probably skipped some items that would be important to readers. In summarizing seven documents side by side, I may have lined up details incorrectly.

This is the list of people the ALJ at OAH approved for depositions. I haven’t tried to find the orders issued by the Superior Court. I have no idea how many were actually deposed.

So, for insight on how the case is lining up, here is the list of those approved for deposition by the ALJ:

CMMB:

  • Mark K.; VP of FffP’s GIK department; familiarity with restrictions on medicine received from CMMB and restrictions placed on overseas recipients
  • Jeffrey A. FffP; see FftP order below
  • Donna F.; Teva Pharmaceuticals Industries; restrictions place on medicine donated to CMMB
  • Julie F.; Management Sciences for Health, publisher of International Medical Products Price Guide; knowledge of pricing for medicine overseas and to show ready availability of such information.

FftP:

  • Mark K; FftP; see CMMB order above
  • Jeffrey A.; FftP Controller; knowledge of FftP’s valuation of donated medicine
  • Timothy B.; MAP director of operations; knowledge of restrictions placed on meds donated to MAP; knowledge of how those restrictions were maintained though the full distribution process **
  • Krupa S.; MAP’s contact with pharma companies; awareness of restrictions placed by donors **
  • Jody A.; MAP’s VP of global giving; contact with pharma companies; awareness of restrictions placed by donors **
  • Michael O.;
  • Adrian K.; CMMB senior VP for advancement; aware of restrictions on medicine distributed overseas
  • Darnell B.; CMMB director of business development; awareness of restrictions placed on donated meds
  • Luke H.; Brother’s Brother Foundation; documents for agreements with FftP and parma companies for 2012 through 2015
  • Lauri P.; Allergan PLC; documents for agreements with MAP, CMMB, and Brother’s Brother Foundation for 2012 through 2015
  • Julie F.; see CMMB order above

** – see comment in MAP section following.

MAP:

  • ** see note below and FftP above
  • Mark K.; FftP; see CMMB above
  • Jeffrey A.; FftP; see Fftp above
  • Laura P.; Allergan PLC; see FftP above; restrictions on donations to MAP
  • Donna F.; Teva Pharmaceuticals; see CMMB above
  • Julie F.; see CMMB above

** – No MAP staff are requested for deposition in the AG’s filing on 7/18/18 regarding MAP; footnote 4 says these staff will be available for testimony in person.

 

Interesting tidbits in the deposition filings

Reasons to seek depositions had to be explained in the AG’s request to OAH. Several of those comments are of interest to readers of this blog.

I don’t quite understand why most of the depositions are for people outside the charity being addressed in each filing. Since I’m learning by watching, I’ll guess that the staff of a charity can be subpoenaed to appear in person. The odd footnote in the MAP filing along with two employees listed for FftP hints to me that CMMB had already agreed their staff would appear in person at the hearing.

Geographic restrictions

AG’s deposition request for FftP identifies Brother’s Brother Foundation as the largest donor of medicines to FftP in 2012, 2014, and 2015 and second largest donor in 2013 behind CMMB.  AG asserts BBF previously told the AG that all medicines received by BBF from Teva, Impax Labs, Activis, Apotex, Mylan, Watson, Wockhart, and Upsher-Smith were restricted for use outside the US.

A memorandum attached to the 7/18/18 petition by AG for depositions on the MAP C&DO contains the following comment in paragraph 10a, which I quote:

… In its pre-filing audit responses, Respondent asserted that “virtually 100% of the donated medicines and medical supplies received by MAP throughout its 60+ year history have been restricted to overseas use for charitable purposes only. A donated product without these restrictions would be highly exceptional.” Respondent now repudiates these statements from its own CFO and says that less than one half of the pharmaceuticals donated to MAP were subject to restrictions, which are “waived routinely.” …

This paragraph tells me that MAP initially asserted that just about every donated med received in the last six decades had a geographic restriction. Comment also says MAP now asserts that statement is not true; under half of all meds ever received have a geographic restriction and those restrictions are waived some portion of the time.

Implication of this dispute would be whether the AG can claim that essentially all, over 50%, or less than 50% of all meds received by MAP are overstated.

Short shelf live

The AG’s 7/18/18 memorandum regarding MAP also contains this comment in footnote 5:

… Respondent claims that testimony regarding its accounting for and reporting of pharmaceuticals they destroy is not material since it is not in the Amended C&D Order. On the contrary, in paragraphs 13 and 14 of the Amended C&D Order, Complainant alleges Respondent’s Forms 990, Forms RRF-1, and audited financial statements all contained false and materially false information due to the reporting of overvalued pharmaceuticals. To the extent those figures included destroyed pharmaceuticals that should not have been included as program expense, that is further evidence of the materiality of Respondent’s false and misleading financial reporting. Moreover, in Respondent’s Appeal it denies that it received pharmaceuticals that were close to expiration when, in fact, its own reports show its very substantial monthly disposals of pharmaceuticals that either expired or were too close to expiration to be shipped overseas.

Focus on the last sentence of that footnote. The AG asserts that MAP asserted it did not get meds that were close to expiration. The AG asserts that MAP records show “substantial” disposals of expired meds on a monthly basis.

Paragraph 10a of MAP’s 4/11/18 appeal says pharma companies “do not offer MAP large quantities of pharmaceuticals that are close to expiration” (emphasis in original). The appeal also says the norm is for medicines to have between 6 and 12 months left before expiration. Anything less than that would be in “exceptional circumstances” with a specific plan for rapid distribution.

I think the issue of destroyed medicine is relevant to the remaining life of meds when they were received. The impact is that if meds had short life upon receipt, the value should have been adjusted substantially for that short life.

On their 9/30/15 financials, CMMB discloses an expense of $22.7M for obsolete inventory with expense of $34.2M for obsolete meds in 2014. For context, that is in relation to GIK income of $261M in 2015 and $357M in 2014. That tells me that somewhere around 9% of the donated medicines expired and were destroyed before they could be used.

I cannot find any comments in the MAP financials for expired or destroyed medicine. I looked at the 9/30/14 and 9/30/16 audited financials. The cash flow statement and statement of functional expenses for 2013, 2014, 2015, and 2016 do not make any mention of destroyed or expired or obsolete medicine. The only reference is to “distributed medicine.” Only comment even closely on point is a reference in the notes that medical inventory is assessed for NRV valuation adjustments.

In terms of materiality, if MAP experienced expiration of meds at the roughly same 9% rate as CMMB, the obsolescence expense would be the third largest individual item in the financial statements. Only the amount of donated medicine revenue and distributed medicine expense would be larger.

Do readers of this post think the amount of destroyed meds might be material to readers of the financial statements?

I didn’t check the FftP financials again while writing this post, but don’t recall any reference to obsolete or destroyed meds in their financials. Maybe I missed it.

 

Since all the charities are at this very moment in court, I won’t seek comment from any of them.

 

What do you think?

Comments welcome.

Did I miss something?

Are my comments more muddled than I realize and need clarification?

Does something need more explanation?

You may leave comments below and I will see them. All comments are moderated.  I can address your idea and delete your comment if you wish.

Keep comments professional. Bear in mind I am the sole authority to evaluate what is professional.

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